Why would carbon tax or cap-and-trade/-etc. work?

I want to hear a convincing reason why any of the measures being introduced in upcoming Congressional bills will have the effect of reducing carbon emissions.

I can see only too clearly how they could lead to higher prices and exorbitant profits for utilities, without providing a benefit (cf. Europe's bungled first attempt).  We've all read how either a carbon tax or cap-and-x would both a) reduce emissions and b) create revenue.  I can see how they SHOULD do one of the two, but not both.  And in fact, I can also see too clearly how neither outcome might occur.

Case: cap-and-trade/-auction/-dividend

Gov't sets cap.
Utility A looks for ways to meet the cap - buying green, running customer EE programs, etc.
This costs, so Utility A ups prices.
Result; lower emissions, customer pays.  RE development encouraged.  
Nothing surprising there.

Utility B can't meet cap, buys permits from emitter C who was already below the cap.
This costs, so Utility B ups prices.
Result; no change in emissions, and ASSUMING Utility B operates in non-competitive market, customer has to pay.  No RE development encouragement.

My question would be, what would incentivize a utility to be A instead of B?  What would stop a utility from staying with business-as-usual, even if the penalty were set very high?  (Even if the money for buying the permits went to the government, and was used to finance RE, so long as the utility is getting paid by its customers for dirty power and penalties, why would they buy the RE power?  If the answer is "RPS", that comes with a clause known as the 'alternative compliance payment', which - again - the utility may find easier to pay and pass on than dealing with renewables).

Of course, emitter C has made some money, but will presumably use that to offset his increased cost of operation due to his emissions reduction measures.

Case: carbon tax

Gov't imposes tax.
Price increases reach customer level, customer pays more for gasoline, heating, hot water, manufactured goods, etc.
Gov't uses tax revenue to reduce payroll taxes or income tax rate.
Result; nothing changes.  Money goes round in circle.  No RE development encouraged.

OR

Gov't imposes tax.
Gov't uses tax revenue to encourage RE development.
RE becomes more competitive.
Result;  reduced use of carbon, reduced emissions, Dems voted out of office in 2012 for being tax-and-spend.

My question would be, do you think this or any US government would follow the latter path?